Closing the Growth Gap

May282014

Making bonus depreciation permanent will help put the U.S. economy on a higher trajectory and begin to close the $1.4 trillion “Growth Gap” between our current recovery and the average of previous recoveries over the last five decades.

Without increased business investment in new buildings and equipment, economic growth and private-sector job creation will continue at the anemic pace that we have witnessed over the past 19 quarters of recovery. Over the same period, the average of other post-1960 recoveries saw real GDP expand at an annualized rate of 4.1% compared with this recovery’s 2.2%. Similarly, while private sector payroll employment increased by an average of 12.6% in the 58 months after the recession ended in other post-1960 recoveries, it has only risen by 7.4% in the current recovery.

The bottom line is that faster growth in business investment generates faster private-sector job growth. As the Tax Foundation recently noted, “Investment increases the potential of our economy” by growing the capital stock which, in turn, boosts productivity and wages. The Tax Foundation estimates that making 50% bonus depreciation permanent would expand the capital stock by more than 3%; increase the size of the U.S. economy by 1%; raise real wages by about 1%; and create 212,000 jobs. Moreover, making bonus depreciation permanent would actually increase federal revenues over the long run because of increased economic activity.